Emperor’s Clothes Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $3.1 million a year, and variable costs are $1.20 per jar. The product will be priced at $2.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 40%. a. What is project NPV under these base-case assumptions? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is NPV if variable costs turn out to be $2.00 per jar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) c. What is NPV if fixed costs turn out to be $2.8 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Emperor’s Clothes Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $3.1 million a year, and variable costs are $1.20 per jar. The product will be priced at $2.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The
a. What is project
b. What is NPV if variable costs turn out to be $2.00 per jar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
c. What is NPV if fixed costs turn out to be $2.8 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
d. At what price per jar would project NPV equal zero? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
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